A Note on Emissions Taxes and Incomplete Information

University of Massachusetts Amherst Department of Resource Economics Working Paper No. 2008-5

13 Pages Posted: 29 Jul 2008

See all articles by Carlos A. Chavez

Carlos A. Chavez

University of Concepción - Departamento de Economia

John Stranlund

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics

Date Written: July 29, 2008

Abstract

In contrast with what we perceive is the conventional wisdom about setting emissions taxes under uncertainty, we demonstrate that setting a uniform tax equal to expected marginal damage is not generally efficient under incomplete information about firms' abatement costs and damages from pollution. We show that efficient taxes will deviate from expected marginal damage if there is uncertainty about the slopes of the marginal abatement costs of regulated firms. Moreover, efficient emissions tax rates will vary across firms if a regulator can use observable firm-level characteristics to gain some information about how the firms' marginal abatement costs vary.

Keywords: Emissions Taxes, Incomplete Information, Uncertainty

JEL Classification: L51, Q28

Suggested Citation

Chavez, Carlos A. and Stranlund, John, A Note on Emissions Taxes and Incomplete Information (July 29, 2008). University of Massachusetts Amherst Department of Resource Economics Working Paper No. 2008-5, Available at SSRN: https://ssrn.com/abstract=1185244 or http://dx.doi.org/10.2139/ssrn.1185244

Carlos A. Chavez (Contact Author)

University of Concepción - Departamento de Economia ( email )

Victoria 471
Oficina 242
Victor Lamas, Conception 1290
Chile

John Stranlund

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003-9246
United States
413-545-6328 (Phone)

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